Question

Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash. Northern Bank charges a 5% factoring fee. What entry should Jervis make to record the transaction?

Answer 1

Answer:

Debit cash by $71,250, factoring expense by $3,750 and credit account receivable by $75,000.

Explanation:

Step 1 of 2

Calculate the amount of factoring fee.

Factoring fee = 5% ×Account Receivable

=5%×$75,000

=$3,750

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Step 2 of 2. Journey record. Image attached.

Debit cash by $71,250, factoring expense by $3,750 and credit account receivable by $75,000.